Civil Engineering Reference
In-Depth Information
still deduct liquidated damages?
The whole idea of liquidated damages is that it is a pre-estimated amount which the parties
have agreed shall be paid on the occurrence of some event. In relation to construction con-
tracts, the event is usually failure by the contractor to complete by the completion date spe-
cifiedinthecontract.Iftherewasnosuchagreementinconstructioncontracts,theemployer
would be obliged to take legal action through the courts to recover any losses suffered as a
result of the late completion. That would involve proving that the contractor had a contrac-
tualdutytocompletebyacertaindate,thatthecontractorfailedtocompleteandtheamount
of loss that the employer suffered as a direct result. To achieve that through the courts or
even arbitration would be time-consuming and expensive. In order to avoid that situation,
the parties agree, and standard form construction contracts have special clauses stating, that
an agreed sum will be payable in the event of late completion. The sum is usually expressed
as per week or per day.
It is established that the sum must be a genuine pre-estimate of loss as viewed at the time
the parties entered into the contract. In other words, it must be the employer's best estimate
of the loss which would be suffered if the contractor delays completion. It does not matter
if the likely loss is difficult to estimate and the employer can only make an informed guess.
Oncethesumisinthecontractandthecontractisagreed,theemployermayrecoverthesum
ifthecontractordefaults.Theemployerisfreetorecoverlessthantheamountstatedbutnot
more. The employer does not have to prove the loss; that is the whole purpose of liquidated
damages.Therefore,theemployermayrecoverthewholesumforthewholeperiodinwhich
the contractor is in default of completion, even if there is no loss or even if the employer
makes a profit as a result of the late completion.
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